The Registration of Charges is always one of the most used but controversial and practically ignored chapters of the Indian company law. I personally never understood the utility of such registration except for a limited public notice in an era of Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). Recent amendment in the law governing the registration of charge makes it more complicated and less user-friendly. Let us try to understand the amended law.
REGISTRATION OF CHARGES [SECTION 77]
Every company creating a charge shall register the particulars of charge signed by the company and its charge – holder together with the instruments creating such charge with the Registrar within thirty days of its creation.
- Any charge created
- within or outside India
- on property or assets
- of the company or any of its undertaking
- Whether tangible or otherwise
- Situated in or outside India
- Shall be registered.
Registration of Charge beyond 30 Days
After the recent Companies Amendment Ordinance, 2019 with effect from 2 November 2018 with all earlier versions of the ordinance, provide that the Registrar may, on an application by the company, allow such registration to be made –
(a) in case of charges created before the commencement of the Companies (Amendment) Ordinance, 2019, within a period of three hundred days of such creation; or
(b) in case of charges created on or after the commencement of the Companies (Amendment) Ordinance, 2019, within a period of sixty days of such creation on payment of additional fees.
Registration of Charge beyond 60 Days
If the registration is not made within the period specified
(a) in clause (a) to the first proviso, the registration of the charge shall be made within six months from the date of commencement of the Companies (Amendment) Ordinance, 2019, on payment of such additional fees as may be prescribed and different fees may be prescribed for different classes of companies;
(b) in clause (b) to the first proviso, the Registrar may, on an application, allow such registration to be made within a further period of sixty days after payment of ad-valorem fees.
No Registration of charge after 120 days?
It should not be the position under the law however there is no clarity under the law post-amendment. This is because the proviso permitting the registration beyond the original extended period of 300 days (now 30+30+60 days) is deleted by law makers. The earlier clause read that if registration is not made within a period of three hundred days of such creation, the company shall seek an extension of time in accordance with Section 87.
Section 87 was also amended by the Companies Amendment Ordinance 2019 with effect from 2 November 2018 which seems to be a limited application to payment and satisfaction of charge.
The compounding of an offence may be a suitable option. It is just a procedural lapse. The Registration of charge actually does not affect any right or duty of any party to the contract creating the charge. The compounding authority may order the government to permit the registration of charge beyond the period and the government sooner or later needs to permit it such registration.
Effect of no registration of Charge
According to Section 77(3), no charge created by a company shall be taken into account by the liquidator appointed under this Act or the Insolvency and Bankruptcy Code, 2016, as the case may be, or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2).
However, this sub-section does not have any practical value as the courts or tribunal in the interest of justice may order otherwise and make Section 77(3) a basis of primary opinion for the liquidator or other creditors.
Liquidators, in any case, shall use information filed before Information Utilities like National E-Governance Services Limited (NESL) and Central Registries of Securitization like Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).
Ease of doing
To avoid duplication and harassments of the companies, duplication of efforts and interest of ease of doing business, the government should delete the chapter VI Registration of Charge for charges created on or after the date of such deletion of the chapter.